Dollar recovery likely to be brief

WHILE the euro hit another record high in early trading yesterday, the dollar recovered some if its losses following a better-than-expected US manufacturing report for February.

Before the new data emerged the euro hit a new peak of $1.5273.

In late trading it had fallen back to about €1.5175 as investors took some comfort from the better manufacturing data.

However, a leading European fund manager warned yesterday he expected the dollar to fall further until worries about the health of the banking sector were put to rest.

That would not happen until the second half of 2008, said William De Vijlder, managing director and chief investment officer of Fortis Investments, who briefed the press in Dublin yesterday.

The dollar’s problem is that key US indicators are consistent with a recession and are at levels “that have previously signalled recession”, he said.

As recession threatens, the US Federal Reserve has acted quicker than it did previously to counter the slow down, and that is impacting the dollar which should keep falling until investors are satisfied the banking sector has purged all of the bad debts.

Investors are worried a protracted recession would force the dollar into a protracted period of low value. That concern has driven big investors towards the yen and the Swiss franc, gold and commodities as a hedge.

Mr De Vijlder believes the worst could be over by the end of this year and rejects the view that the US and the developed world are heading for a long recession.

In New York oil hit $103.64 on the New York Mercantile Exchange after briefly rising to $103.92. Many consider oil’s previous record high was $38 a barrel set in 1980, equal to $103.76 when adjusted for inflation.

Oil prices have been driven higher in recent weeks by the dollar’s continuing decline.

Traditionally investors have bought oil and other commodities to protect the value of their funds.